Taxpayers still on hook for $130 bln in TARP funds

RonaldD. Orol

WASHINGTON (MarketWatch) — Taxpayers still bear the risk of $130.5 billion in outstanding Troubled Asset Relief Program funds, a watchdog for the government crisis response program said Thursday in a quarterly report to Congress.

The report, written by the Office of the Special Inspector General for the TARP, acknowledges that the taxpayer-injection fund — set up during the height of the financial crisis of 2008 to stem the credit contagion — continues to wind down.

The amount of taxpayer funds still outstanding is less than the $146.8 billion that the watchdog pointed out in its last report in April were still being employed at institutions as of March 31. Read about the watchdog's April TARP report

This report points out that as part of the TARP wind-down the Treasury Department recently sold some of its stake in American International Group Inc.
AIG, +1.39%
and all of its equity in automaker Chrysler Group LLC. At the same time, it adds, more banks exited the TARP program during the past three months, in part, by paying back the funds they have received.

The Treasury earlier this month exited its Chrysler investment by selling a $500 million, or 6% stake to Fiat (F), with the Italian automaker also paying $60 million for rights under an agreement with the UAW retirement trust.

However, the report also said that taxpayers also bear the risk of Treasury’s 77% stake in AIG, 32% stake in General Motors Co.
GM, +0.33%
and 74% stake in Ally Financial Inc. (formerly GMAC, Inc.), as well as other investments.

“While it is good news that Treasury is exiting its investments in many of these larger financial institutions, this should not distract from the hard work ahead,” the watchdog said in the report.

The report also points out that the number of smaller banks that have received TARP financial injections that have missed paying dividends to Treasury required by the program has gone up and is now at 188. In December, a research firm, SNL Financial, reported that 123 TARP assisted banks missed their dividend payments.

Banks receiving TARP capital injections must pay a 5% dividend per year, with payment to Treasury due four times a year. Five years after signing a contract to receive those funds, TARP recipients must pay dividends of 9%, based on a provision to encourage banks to pay back the funds they have received.

The report added that an additional $53.2 billion in TARP funds is available to be spent on other programs such as the Home Affordable Modification Program, which uses government funds to assist troubled homeowners on the verge of foreclosure.

Treasury spokesman Mark Paustenbach said the agency is “pleased” that the watchdog recognizes the progress made in winding down TARP. He added that Treasury has recovered 75% of the funds disbursed. “We will continue to exit these investments in a way that protects taxpayers’ interest,” he said.

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